This article by MOI Global instructor John Lewis is excerpted from a letter of Osmium Partners, based in Greenbrae, California.

Leaf Group Ltd.[1], is an online digital media company composed of two service offerings: Content & Media (C&M) and Marketplaces. C&M publishes and distributes content, accumulating a library of articles, videos, and blogs across their properties such as and They also operate two leading artist marketplaces, Society6 and Saatchi Art, which provides the global community of artist with an online commerce platform. Leaf Group’s current market capitalization is approximately $241 million. (LFGR is a holding across all funds.)

Leaf reported solid results:

• +20% revenue growth

• +35% in Media (+25% organic growth, an acceleration from +12% organic growth in 1Q18)

• +11% in Marketplaces (focus on gross profit improvement which grew 24% yr/yr)

• +42% growth in Saatchi Art (launched: reseller services which should further accelerate revenue growth)

• $32 million net cash or $1.30 a share

• Adjusted EBITDA was -$600K

• Guidance is for steady state EBITDA profitability starting 4Q18.

• Sum of the parts: $16-18 per share.

• Society6 launched at Target.

LEAF continues to build their platforms in both the Marketplace and Media segments. In the last 12 months, the Media segment contributed $0.90 per share to the operating contribution margin before corp. expenses (a strategic acquirer typically pays 8-11x this multiple), and grew revenue by 25% organically and 35% including the recent acquisition of Well+Good.

Online media companies monetize their content through an ad stack monetized by clicks per 1000 impressions (“CPM”). The ad stack ranked from highest revenue per visit is as follows: Direct (>$10 CPM), Programmatic ($5 CPM), Open Auction ($3 CPM), Google Adsense (<$1 CPM). The Well+Good acquisition comes with a direct sales force and participates in direct portion of the ad stack where CPMs are north of $10, we believe much higher for Well & Good. Total Media Revenue per visit (“RPV”) jumped to $19.00, up $4 from $15 a year ago. RPV without Well+Good was $17.81. For the quarter, LEAF had 770 million page views and generated $14.7 million dollars. Run rating for the year, a $1 increase in RPV will add $3+ million to the top line annually.

KKR bought WebMD for $3bn in July 2017 (very slight revenue growth) and paid 13x EBITDA and 3.4x EV/Sales. Everyday Health (EVDY) was acquired for $450 million or 21x EBITDA and 2.4x EV/Sales.

As shown below the 2 analysts that cover Leaf have moved their price targets up with accelerating revenue growth/scale from $7.50 three years ago to $14.50 today.

As shown below Craig-Hallum has a $15 target. We see improving fundamentals and come to a sum of the parts valuation of $17 which we believe is a 25-50% discount to peers.

[1] Market price as of the date of dissemination of the letter

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Certain factual and statistical (both historical and projected) industry and market data and other information contained herein was obtained by Osmium Partners from independent, third-party sources that it deems to be reliable. However, Osmium Partners has not independently verified any of such data or other information, or the reasonableness of the assumptions upon which such data and other information was based, and there can be no assurance as to the accuracy of such data and other information. Further, many of the statements and assertions contained herein reflect the belief of Osmium Partners, which belief may be based in whole or in part on such data and other information. The information contained herein is provided for informational purposes only. This is not an offer to sell, or a solicitation to buy, limited partnership interests in Osmium. An investment in Osmium is not suitable for all investors. Graphs/charts are provided for illustrative purposes only and should not be relied on to form an investment decision. Stocks mentioned in the newsletter do not constitute a recommendation to buy or sell the individual securities.